This year is gearing up to be a blend of silver linings and harsh realities in the housing market.
On the bright side, shoppers will have a variety of homes to choose from, with property prices stabilizing instead of skyrocketing. There’s a hint of good news for those financing their homes: mortgage rates might see a decrease, providing some relief to both buyers and a few sellers.
However, the less comforting news is that even if mortgage rates dip, the decline may not be significant. This could continue to pinch affordability for buyers and persuade some homeowners to delay selling as long as these rates remain high.
To help navigate the market in 2025, whether buying, selling, or both, here’s a guide packed with insights from seasoned real estate professionals.
## Facing the Reality of Mortgage Rates
As we look ahead to 2025, there’s one question on every buyer’s mind: “Will I actually find a home within my budget?” That question branches into a few others: What will be the state of mortgage rates? Are home prices going up or down? Will there be enough options to consider?
Let’s start with mortgage rates. Over the past year, the 30-year mortgage rates hovered above 6.5%, occasionally peaking over 7%. Many experts spent much of the year predicting that rates would fall below 6% in 2025. But after the election, many revised their forecasts, anticipating rates will stay above 6%.
Between February 2011 and April 2022, mortgage rates stayed comfortably below 5%, and both buyers and those refinancing grew accustomed to those friendly terms. Now, as some commentators describe, we’re stepping into the “new normal.” Terri Robinson, a real estate agent from Re/Max Distinctive in Ashburn, Virginia, mentions that buyers are adjusting to this new normal, ceasing to chase after the elusive 3% rate.
## Expected Changes in Home Prices
When talking about home prices, it’s all about supply and demand. Back in 2024, whenever mortgage rates eased to around 6.25% or lower, eager buyers quickly made offers. But as rates climbed past that point, demand waned, leaving homes on the market longer. According to Altos Research, the early days of November saw a 28% increase in homes available compared to the same time the previous year. A higher inventory is advantageous for buyers as they get more options to consider.
Although demand still overshadows supply, it’s not the stark disparity it once was. This suggests that home prices will keep rising in 2025, albeit at a smaller pace, especially given the rates hold above 6.25%.
Should mortgage rates drop significantly, home prices could surge as buyers rush back, vying for the limited supply.
## Easing of the Housing Shortage
The shortage of houses links largely to two issues. Firstly, construction of new homes and apartments lagged behind needs for about 18 years. Secondly, numerous homeowners have kept their properties off the market because they refinanced at ultra-low rates in 2020 and 2021. As per the Urban Institute, nearly half of outstanding mortgage debt carries an interest rate of 3.5% or less.
For those homeowners, selling would mean facing a much steeper rate on their new home loan. This so-called rate lock-in has led to 800,000 homeowners holding onto their properties from mid-2022 to the latter part of 2023, a point underscored in a November report by the National Bureau of Economic Research.
However, Stacy Hennessey, from McEnearney Associates in Falls Church, Virginia, observes that rate lock-in’s grip is waning. “People are adapting to the higher rates and are eager to relocate,” she notes. “I believe people will follow through with their plans and start listing their homes.”
Robinson, the agent from Ashburn, suggests sellers rethink focusing solely on the low rate they’re leaving behind and instead consider the home equity they’ve amassed. Depending on their financial strategy, the monthly payment on their next house “could be similar or even less,” she adds.
## Other Influences on the Housing Market
It’s still a bit premature to fully grasp how policies from the current administration will shape the housing landscape in 2025. One potential initiative – opening federal lands for housing – likely won’t see completion by the year’s end, as developing new housing takes time.
A major change came in August with a new rule transferring the responsibility of setting agents’ commissions to buyers, rather than sellers making that determination. While buyers can ask sellers to cover some or all of their agents’ commission, and many sellers oblige, there are occasions where buyers shoulder this cost themselves. Agents suggest this shift could prove challenging for first-time buyers who may have less savings.
## Tips for Home Sellers
Sellers still hold some sway in negotiations, but their edge isn’t as sharp as in 2021. Ensuring a successful sale now requires effort in showcasing the property to potential buyers. “You’ve got to stop thinking you’ve got the market cornered,” warns Andy Sachs, managing broker for Around Town Real Estate in Newtown, Connecticut.
Chuck Vander Stelt, a real estate expert from Valparaiso, Indiana, stresses starting with demonstrating value. Work alongside your listing agent to price the home fairly and emphasize any upgrades you’ve made.
Hennessey from Falls Church advises on hiring a professional photographer for the listing. She explains that shoppers often decide whether or not to pursue a property based on the first few photos. “If the initial shots are great, they’ll keep looking; if not, they’ll move on,” she says.
She criticizes subpar real estate photography, declaring, “We don’t need to see a mess – it’s meant to be an ad, not a disclosure.”
## Tips for Home Buyers
Buyers are encouraged to look beyond the aesthetics and assess a property for any potential red flags, seasoned agents suggest.
Victoria Ray Henderson, owner of HomeBuyer Brokerage in Bethesda, Maryland, advises, “Before drooling over granite countertops, check out the structural aspects first.”
If the house has a basement, she suggests inspecting it first for any signs of water issues or neglect. If the basement seems in good shape, then go ahead and enjoy marveling at the kitchen.
Smart buyers tread carefully. Hennessey recommends getting pre-offer home inspections in competitive markets, where you bring an inspector along for the tour. This faster, less in-depth inspection might still catch major issues, giving you peace of mind. Although not all sellers agree to this, many do because it encourages offers without contingencies.
Finally, Vander Stelt advises action over waiting, stating, “Don’t get hung up on interest rates. If you can afford it today, go for it and make the purchase.”
